Procurement

Procurement process bladeThe aim of the Procurement process blade, sometimes called vendor management, is to help obtain products and services from other organizations. To do this your procurement team will collaborate with other parts of the organization to help them understand their procurement needs (if any), identify potential vendors that can fulfill those needs, and work with Legal to develop appropriate contracts.  Organizationally your procurement team is often part of, or at least closely related to, your legal team.

The following strategies enable a Disciplined Agile approach to Procurement:

  1. Collaborate closely with the actual people you procure for. Very often the team that requires a product or service be procured for them will have a very good understanding of good options, and sometimes the best option, available. Listen to them and trust them.
  2. Work with the right vendors. Many organizations make the mistake of working with a limited number of vendors, often to simplify procurement. But, if you want the best fit, then you really need to work with a range of vendors. Larger companies tend to offer commodity services and products, smaller companies are more leading edge but may not have the capacity for larger efforts, and independents are often experts in a specific topic.
  3. Build partnerships. When it comes to procured services, vendor staff will often be a critical part of a value stream. So treat them as such and embed them as closely as you can. Scott once worked with a company where the integration of full-time employees (FTEs) and contractors was so good they challenged him to identify which company each person on the team actually worked for – he couldn’t do it. Note that some countries, particularly the US, have specific laws that limit how you are able to treat contractors and consultants and may even put an upper limit on how long they may work for you.
  4. Prefer context-sensitive contracts. Although this shouldn’t have to be said, we’ve seen far too many organizations where their procurement team appears to have a “one size fits all” mentality. The point is that a multi-million dollar services contract will be a bit more detailed than a contract for two-day workshop. A contract for Agile services should reflect how an agile team works whereas a contract for traditional services should reflect how a traditional team works. Use the right contract for what you are trying to procure – Context counts.
  5. Beware the extremes. When it comes to comparing vendors based on cost, which is a questionable strategy at best, our advice is that the vendors in the middle are likely your best bets. Our experience is that lowest bidder will very likely produce low quality or will nickle-and-dime you via their change management strategy whereas the highest bidder either doesn’t want your business to begin with, aren’t very streamlined in the way that they work, or in some cases really are the very best and know what they’re worth.
  6. Prefer flexible funding contracts over fixed-bid contracts. Fixed-bid tends to focus on initial price, thus promoting a lowest-bid mindset which generally leads to trouble. Systems thinking tells us to end the practice of awarding business on the basis of price tag and instead minimize the total cost (or better yet the net value received). Fixed price contracts tend to be a worse case scenario for all parties involved.
  7. Prefer incremental delivery contracts over big-bang contracts. The larger the contract, the greater the risk. To remove that risk, when you can, break a large contract into small incremental deliverables. You reduce the cost of delay by doing so, introduce opportunities for learning and adjusting your strategy, and increase overall transparency.
  8. Prefer outcome-based contracts over feature-based contracts. Just like your internal metrics should be outcome-focused so should your contracts. There is no guarantee that the features you defined up front will be what customers actually want [BRUF]. Instead define contracts in terms of outcomes – increased sales, increased customer retention, customer growth, and so on. Effective contracts define a set of outcomes to achieve, a set of constraints, and give the team the freedom to work within that sandbox.
  9. Avoid detailed contractual processes. Large amounts of up-front planning tends to increase risk in complex situations. Worse yet, detailed contractual processes tend to favor incumbents and large service providers (as opposed to the right vendors), they inhibits transparency (rarely exploring the implications of how a vendor will provide a service), they are inaccurate (everyone tends to be overly optimistic), and they usually ignore outcomes in favor of outputs.
  10. Monitor fulfillment of contracts. Past performance is critical input into determining whether to award new work to a vendor, which is a significant motivator to act as a good partner right now. Just like regular retrospectives to identify potential improvements works well for solution delivery teams, the same technique can be applied to identify how well a contract is being fulfilled and more importantly how to address any problems you’re currently experiencing.

Sadly, we have seen many situations where Procurement is far from agile. The movement to reduce the number of “preferred” vendors in the interest of bargaining, risk management, pricing consistency, and less paperwork often leads to significant inefficiencies during contract execution. The large preferred vendors often have to subcontract the work to smaller consultancies who have the actual skills, leading to a much higher rate than if procurement contracted with the smaller company to begin with.  We also often see staffing of unqualified, poorly skilled people because procurement went with the lowest bidder or because the vendor could place anyone they wanted into a team under a general services contract.